I am a CPA in Texas with an MBA from the University of Chicago. I have seen a lot and made many mistakes. Hopefully by now I will have learned something from them. Just as importantly, you may learn something from my mistakes. You can e-mail me by clicking on my "View my complete profile".

Saturday, December 6, 2008

Last Refuge

"All the world, however, is still eager to lend to one impecunious borrower: The U.S. Treasury has to beat away would-be lenders at every auction of U.S. debt. ... Now that the fear-of-the-month is deflation, investors want to put what remains of their capital into T-bills. Now short-term money is essentially free. Traders wonder if a bull market in bills can push the return on capital into negative territory. ...If Treasury securities are assets at all, then Treasury bills and Treasury bonds are the new asset bubble. The U.S. Treasury is selling security--return of capital--and the world is hungry for that product as it was hungry for energy a few months ago. Ask the Russians and the Saudis and the Canadians how secure the Treasury's debt-issuers--and all Americans--should feel about the privileged status of their most important product. ... But the luster of T-bills cannot forever empower the U.S. Treasury either. ... Is there a limit to investors' willingness to buy the security of Treasury securities? ... Any reasonable investor faced with the current market circumstances must cast a wistful eye at gold. The magical metal is usually the last refuge of fearful people--not Treasury paper paying negligible interest. ... If gold is too expensive, what's cheap?," my emphasis, Thomas Donlan at Barron's, 24 November 2008.

5 comments:

If we go into a hyperinflation then everything is cheap right now with the exception of paper.Check Wiemar republic for details.

The problem at this point is that the banks who are the ones buying and holding treasuries instead of lending make it unprofitable to ship or extract oil, copper, corn, wheat, soybeans, ect. As soon as existing supplies are used up shortages will develop the supply chain breaks down. The BDI is falling like a rock as globalization is freezing up and shipping companies are going under. Gold was cheap in 2001 at 280 when it cost more to get it out of the ground then what producers could sell it for. That is the case for oil in most cases now.

Anonymous 2:BDI is down about 93% in the last five months. Shipping stocks are cheap. I don't worry about the banks. My question is when will the: Chinese, Japanese, Saudis, etc., pull the plug on the dollar? I agree about commodity shortages developing soon. Gold is cheap compared to the amount of currency in the world. You see gold as a commodity, like say wheat, I say it's money. How much is the Fed's profit (seignorage) from creating billions out of nothing? What's the Fed's marginal cost of producing a billion dollars? Consider, with M3 at about $14 trillion, and Uncle Sam holding 261.5 million ounces of gold, gold must rise to $53,500 per ounce to "ratify" all existing dollars. Our entire monetary system is a "con game". Gold was $1,033 a few months ago. Did Zimbabwe Ben sell? No. Why not? You supply the answer.